Investors Resistant to Coronavirus Fears - Adviser Investments

Investors Resistant to Coronavirus Fears

February 18, 2020

Please note: This update was prepared on Friday, February 14, 2020, prior to the market’s close.

Despite a litany of risks, including COVID-19 (the newly minted official name for the coronavirus), U.S. stock markets continue to set records, and now Europe is joining in. On Wednesday, both the German stock market and the European STOXX 600 index set record highs. And here at home, the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite all hit records—again.

For the year through Thursday, the Dow and the broader S&P 500 index have returned 3.4% and 4.7%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is down 0.1%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has declined to 2.06% from 2.11% last week, and from 2.31% at 2019’s end. On a total return basis, the U.S. bond market has gained 1.7% for the year.

Headlines Fret, Markets Don’t

Stocks moving higher due to lessened concerns about the coronavirus? That was the story told by multiple news sources this week. As you know, we don’t buy headlines at face value. The fact is that as awful as the coronavirus and its impact have been, they don’t appear to have troubled investors all that much. We’re not saying it shouldn’t trouble them more (as you’ll read in a minute). But here’s what we actually know.

The first we heard about the virus was on the last day of 2019. And yet the stock market rose on January 2, dipped the next day and then meandered back and forth but ultimately was up 3.1% by mid-January. The index then gave back those gains over the next nine trading days, dropping to a tiny 0.2% loss at month-end, only to begin rallying again. If that was the extent of the news’ ability to impact markets even as coronavirus fears were rising—well, that’s not much to worry about. So, how is it that the recent stock market gains are pinned on fears subsiding?

Note: Chart shows day-to-day cumulative gain/loss of the S&P 500 index (excluding reinvested dividends) from 12/31/2019 through 2/13/2020. Source: Morningstar Direct.

We think this is another example of the financial media looking for a story and pushing a narrative that accounts for what is really the randomness of short-term market movements. If stocks were in decline, the narrative would be about uncertainty around the numbers of people infected and dying as reported by China, the disruption to commerce and so on. But stocks are up, so that’s not the story.

Reasons to Be Cautious About Coronavirus

We are not saying concerns are unwarranted, though. We’ve shared plenty of examples in this space of how traders’ emotional responses to global events can lead to aberrant market behavior over the years. But the stock market’s recent gains seem disassociated with coronavirus news.

In his scheduled testimony to Congress this week, Federal Reserve Chair Jerome Powell said the Fed is “closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.” We are watching for this, too.

Some of the questions we’ve been debating: Could the virus disrupt supply enough to incite inflation (with too many dollars chasing too few goods)? Could that in turn negatively impact corporate earnings? To what extent is business response to the virus offsetting any positives from “phase one” of the U.S.-China trade deal?

While fear of the still-spreading coronavirus appeared to recede this week (unless you were in Wuhan or trapped on a quarantined cruise ship), we’ll remain hopeful but skeptical of daily reports until we know there is an all-clear.

It’s worth remembering that while disruptions like the coronavirus pandemic create market risks, they also create opportunities. Given what we know so far, we think there are more of the latter than the former. That could change, and change quickly. In the meantime, we’re staying focused on the facts we know—not the headlines many fear.

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Financial Planning Focus
Love Match: Valentine’s Day and Financial Planning

Valentine’s Day is more than a chance to celebrate your significant other in words, flowers and gifts. It’s also a fine time to prove your love with action through, yes, financial planning.

While you may or may not find investing and financial planning particularly romantic, we think they set the perfect stage for providing stability and a legacy that will allow your love to blossom for many years to come.

Here are five gestures from small to grand you can make alongside your professions of affection this February 14:

  1. Check Beneficiary Statuses. It might not be pleasant to think about, but what could be a better expression of love than making sure those you care about are taken care of after you’re gone? Reviewing who is listed as a beneficiary on your investment and retirement savings accounts every year is a smart move, and Valentine’s Day is as good a reminder as any to keep beneficiary designations up-to-date.
  2. Review Insurance Policies. Likewise, of particular importance, especially if you’re a parent, is having proper insurance coverage in the event that calamity strikes. For more on insurance of all types, listen to our parent company’s The Adviser You Can Talk To Podcast episode that covers common insurance needs for people of all ages.
  3. Budgeting for a Romantic Getaway. When was the last time you took a vacation together, just the two of you? It’s still early enough in the year to fit a special trip into your annual budget. This Budget Worksheet can help you figure out how to pay for that special getaway.
  4. Buying a Vacation House. A romantic trip to the beach, lake or ski resort leads many vacationers to ponder what it would take to turn their favorite destination into a permanent family retreat. A second home may not be for everyone, so click here to learn more about the important factors that go into determining if a vacation home is right for you.
  5. Should You Invest in Gold? You may have heard that gold is a good inflation hedge. Well, gold sold for $875 an ounce just over 30 years ago, and is now selling for around $1,500 an ounce—about 50% less than if it had kept up with inflation over that time. In our view, the best investment you can make in gold is to hang some around the neck of someone you love.

Creating financial security is a powerful and lasting way to say, “I love you!” that can be savored far longer than a box of chocolates.

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Looking Ahead

Next week, the Presidents Day holiday results in a shortened week for traders, but we’ll still get manufacturing and service sector data, homebuilders’ confidence, housing starts, building permits, existing home sales, minutes from the most recent Fed meeting and leading economic indicators.

As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.


Please note: This update was prepared on Friday, February 14, 2020, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

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